A Comment -- General Comments From an Expert (A Commentary)

GICs for 1 or 2 years? Not the worse investment. You are sometimes handcuffed for two years – you are locked in sometimes. You could probably do better in a short duration bond fund.

Rate adjustments in quarters – Why? Greater than 25 basis points has a shock value. In developed market countries smaller than 25 basis points is just silly and you aren’t impacting anything. You can’t fine tune the economy that much by 5 and 10 point changes.

Rising rates in the utility sector. There is a higher degree of certainty of the cash flows in the future so there is a lower discount needed to be applied when comparing to government bonds. Higher quality cash flows like these get hit harder when government rates go up. You are only positively affected when rates go down.

Preferred Shares with nice yield that have gone up – continue to hold? They would have to be perpetuals. Rate resets have inherent volatility. He thinks the perpetual preferreds are okay as long as they are not called away from you.

River Cree Entertainment bond, 11%, due 1/20/2021. (Top Pick Jan 6/14, Up 12%) Smoking rooms in a casino. Edmonton. The bonds fell and he bought more. 11% coupon.

Mattamy Group 6.875% 11/15/2020 Bond. (Top Pick Jan 6/14, Up 6%) Modest coupon. Bond was trading lower because of lower outlook in Ontario real estate. Financials are rock solid and he was looking to buy more.

Commerzbank AG 8.125% 9/19/2023 Bond. (Top Pick Jan 6/14, Up 15%) Lower in the capital structure -- in the middle. It is a decent bank and he is high enough in the capital structure that he is not worried.

Sinclair Broadcast (Television) Group Inc (SBGI.O) Bond, 5.625%, August 1, 2024 A local broadcaster in the US. They reach 38% of the population. They are almost like a toll road for the national broadcasters instead of relying on local advertisers. [They charge the national broadcasters instead of local advertisers]

Markets. Thinks we are in the 1^st half of a multiyear bull market. Even if we get higher rates, we are still going to be generational low, lower than we have been in the last 30 years. We have a long way to go to get back anywhere near a normal interest rate environment. Because of that, even though the S&P is trading at the upper end of the range, that historic multiple has been obtained in varying interest rate environments, none of which are calling for rates where they are now.

What percentage of investments could be in speculative stocks? This all depends on the individual. If you are very risk adverse, you probably shouldn’t have anything in speculation. It should certainly be no more than 5% of your portfolio. You could do this 1 of 2 ways. Either through very, very junior speculative companies or with seasoned companies through the options market, where you have a time risk element as well. He doesn’t recommend it for his clients.

A Canadian or US bank for a 3-5 year time period? He looks to the US for areas that he can’t get in Canada and banks are not one of them. Canada has some very strong banks and very well priced. There is also the added benefit of the dividend tax credit. He would stick to the Canadian banks. Toronto Dominion (TD-T) is his favourite and has exposure to the US as well.

Economy. He sees a multispeed global economy. The obvious speed is the US, which pushed into the 2^nd half of last year and into the new year at a pretty good clip. Some of the weak areas of the world are China, India and the Euro zone. Falling commodity prices and falling bond yields are going to get the Euro zone economies starting to accelerate, probably somewhere mid-this year. Since the beginning of the year, these are some of the better global performing markets, in anticipation of that happening. For 2015, you are going to have some commodity producing companies (oil particularly) struggle a little. On a global basis, you have OPEC and Russia which are far more exposed to oil export as opposed to a percentage of their GDP. He is looking for a better 2016. Lots of stimulus from lots of sources to really help things.

Markets. Thinks it is going to be a bit of a struggle for equities in the next little while. There are too many odds and sods out there, including the Greek situation, the Ukrainian situation, the Iraq situation. Also, expecting some political upheaval in places that are big oil producers. There are a lot of things causing uncertainty in the world, a little more than usual. However, the economic outlook is as good as it has looked for a few years. US is finally really gaining some traction and if it does well, Canada will do okay as well. Our forest product industry, mining industry, lower energy costs, the lower loonie, and Ontario, even though the industry side isn’t as big as it used to be, will all benefit. Banks were the worst performing sector in January, but they are back into a Buy now. He would advise people not to sit on huge cash amounts, but to get invested. The market will make progress, but it will be tough progress. He has been increasing his US exposure, and it is up about 10%-15%.

Economy. He is fairly constructive on the US economy, but a little more cautious on the Canadian outlook because of the recent drop in oil prices. In the US, unemployment is coming down, housing market is improving and the federal reserve is continuing to keep a very accommodative policy. Generally speaking the US is the bright light globally from an economic standpoint. It is questionable if some of that is already built into the US equity market, but overall he likes US equities, and thinks the US economy will improve this year. In Canadian equities, he favours companies that are exporting into the US market and benefiting from the strong demand of the US and a weaker Cdn$. Other than the forest product sector, he has relatively muted exposure to commodity markets. Housing demand in the US has not caught up yet to where it needs to. 2015-2016 should be very good years for US housing.

TSX. He is very uncomfortable with the Canadian market. The markets are doing quite well, but he is just not sure why. You have the gutting of the manufacturing sector in Ontario, the depressed oil prices and there is no sense of anything really happening in our favour. He is thinking that he might take a little bit off the table on the TSX, where he has some good long term gains. The lower loonie is terrific for the export markets, but that is going to take a while to filter down into profitability.